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Greek aid package synonymous with default, says rating agency

Standard & Poor's called the proposal to roll over Greek debt tantamount to default. In Germany, some economists are challenging German part in eurozone bailouts.

By Correspondent / July 5, 2011

Protesters gather in front of the Greek Parliament during a peaceful rally against plans for new austerity measures in central Athens on June 13, 2011. Standard & Poor's international credit rating agency said it would consider the latest proposals for restructuring the Greece’s massive debt as a default.

Kostas Tsironis/AP

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Berlin

There's no rest for the troubled Greek economy: The rating agency Standard & Poor’s said it would consider the latest proposals for restructuring the country’s massive debt as a default.

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S&P’s announcement refers to the so-called Paris model, a proposal developed by French banks, to roll over Greece’s debt. According to the plan, private creditors would renew maturing Greek bonds on different terms. German banks have signaled they are prepared to join the scheme.

“It is our view, that the options described in the [French bank’s] proposal would likely amount to a default under our criteria,” S&P said in a statement.

Paradoxically these measures are designed to prevent a state default within the eurozone – a scenario Europe’s governments are frantically trying to avoid.

It was immense pressure from the European Union (and the International Monetary Fund) that forced the Greek government only last week to push another austerity plan through parliament in order to secure further financial help. While lawmakers debated spending cuts worth 28 billion euros ($40 billion), police had to use tear gas to disperse violent protests in the streets outside parliament.

There is a growing sense in Europe that a Greek default is unavoidable – and possibly not the catastrophe described by politicians.

"The Greek economy is small and certainly not systemically relevant for the eurozone,” says leading German economist Stefan Homburg, director of the Institute for Public Finances in Hanover. “The Russian insolvency in 1999, for example, was of much bigger proportions. It didn’t threaten the world financial system. The process leading to a Greek default is already irreversible.”

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